Investors In Financial ETFs Will Be Closely Watching Earnings Reports From Major Banks

“A popular exchange-traded fund tracking the financial sector has jumped ahead of the market to start the year, but the parade of key earnings reports from major banks will put the budding rally to the test. The Financial Select Sector SPDR Fund (XLF) is one of the most highly traded ETFs, with daily volume often exceeding 100 million shares. It follows the financial-services stocks in the S&P 500 Index (SPX), including companies from the commercial banking, capital markets, insurance and real estate industries,” John Spence Reports From MarketWatch.

Spence Continues Saying, “The ETF has outperformed the S&P 500 so far in a young 2010 with a 6% return through Jan. 14. The financial ETF could see sizable moves and trading volume as big banks report fourth-quarter results. J.P. Morgan on Friday reported a quarterly profit of more than $3 billion but the stock lost ground as revenue was lower than expected and credit losses continued to mount. In terms of share volume, only the SPDR S&P 500 ETF (SPY) saw more activity in 2009 than the financial ETF, according to data from the National Stock Exchange.”

The Financial Select Sector SPDR Fund “continues to be an important tool for investors to express a view on the financial sector,” said Tony Rochte, senior managing director at State Street Global Advisors, in an interview. He said most of the trading volume comes from institutional investors and hedge funds. One strategy they can use is to pair the ETF with an individual stock in the sector to dial back risk on a trade. Or, investors may use the fund to get quick exposure to the sector while examining specific companies in which to invest. “The key here is the ability to reach into the capital-markets sector with one efficient trade,” Rochte said.

Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling?

"I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets -- year-in and year-out."

“The Financial Select Sector SPDR Fund is “an excellent lens to both assess the expected recovery of the financial sector and to gauge valuation in this important industry group,” says Nicholas Colas, chief market strategist at ConvergEx Group. For the financial sector, the upcoming earnings season will be full of “easy comps” to what was a disastrous fourth quarter of 2008 in the credit storm, he said in a Jan. 12 research note,” Spence Reports.

The investment (XLF) includes companies from the following industries: banks, diversified financials, insurance and real estate. The fund will normally invest at least 95% of its total assets in common stocks that comprise the relevant Select Sector Index. This fund has adopted a policy that requires it to provide shareholders with at least 60 days notice prior to any significant material change in its policy or its underlying index. It is nondiversified.